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Tailored support can boost private economy

China Daily | Updated: 2018-11-12 07:52
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Launch reform to help SMEs

Financing difficulties and high financing costs have been a big problem for China's small and medium-sized private enterprises.

Why has the problem remained unsolved?

The issue is largely related to the size of these enterprises and their respective operations. Most of the nonpublic enterprises are small in scale and correspondingly they seek relatively small loans from banks. But the banks have to do the same amount of work to issue loans to either the SMEs or large enterprises— for instance, assessing a borrower's net worth, lawyers' fees and time costs. Besides, there is still a big gap between most private SMEs and large enterprises in terms of operation capability and self-regulation. As a result, the banks are less willing to grant loans to the SMEs.

According to a report issued by the Chinese Academy of Fiscal Sciences affiliated to the Ministry of Finance in July, the average financing scale of nonpublic sample enterprises has drastically declined over the past three years, from 599 million yuan ($93.73 billion) in 2015 to 460 million yuan in 2017.

How to address this problem?

For that, nonpublic SMEs have to improve their operations, such as making clearer their account management. And the banks need to learn how to deal with these businesses and increase their lending to the SMEs to an appropriate scale. In this respect, the United States' experience offers a lesson. The US has more than 500 small and medium-sized local banks, which play an important role in financing domestic small businesses.

As such, allowing the local banks to play their full role may resolve the lingering financing problem facing China's private SMEs.

Still, it would be unrealistic to rely on some short-term policies to solve the long-standing financing problem of China's SMEs. The country should establish some investment and financing institutions that are fully focused on small businesses.

Li Daokui, director of the Center for China in World Economy at Tsinghua University and a senior advisor to Pangoal

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